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Chapter Nine

Chapter Nine. Markets and Money in the Global Political Economy. Liberal International Economic Order. set of regimes established after World War II to promote monetary stability and the free flow of trade and capital Bretton Woods conference WTO/IMF/World Bank

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Chapter Nine

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  1. Chapter Nine Markets and Money in the Global Political Economy

  2. Liberal International Economic Order • set of regimes established after World War II to promote monetary stability and the free flow of trade and capital • Bretton Woods conference • WTO/IMF/World Bank • spurred by globalization and interdependence

  3. Commercial Liberalism • humans naturally want to cooperate • trade can benefit all and promote peace • problems of capitalism boom-and-bust can be solved • open markets and free trade • principle of comparative advantage • absolute gains of trade more important than relative gains

  4. Table 9.1: Comparative Advantage and the Gains from Free Trade

  5. Mercantilism • government regulates economy to increase power and security • economy subordinate to needs of state • trade: relative gains more important than absolute gains • international politics as zero-sum game • ties with political realism • neomercantilism

  6. Protectionism • beggar-thy-neighbor policies • import quotas • export quotas • non-tariff barriers • protection of infant industries • strategic trade policy • countervailing duties • antidumping duties

  7. Hegemonic Stability Theory • peace and free trade depend upon a great power willing and able to use economic and military strength to promote global stability • United States now; Britain before • hegemon helps provide collective goods that benefit all • free riders • promote free trade and free markets

  8. United States: Declining Hegemon? • largest economy • share of world output declining • largest debtor nation • imperial overstretch? • uncertain future for the international system

  9. Free-Trade Regime • GATT: General Agreement on Trade and Tariffs (1947) • Uruguay Round 1986-1994 • WTO: World Trade Organization; increases free trade; dispute settlement; enforcement • critics: decreases sovereignty; hurts efforts to protect environment; promotes globalization

  10. Table 9.2:GATT-WTOChronology

  11. Figure 9.1: A GATT-WTO Chronology

  12. Monetary Policy • manipulations by central banks to control inflation and regulate the economy • change money supply • manipulate interest rates • control inflation • promote economic growth and trade

  13. Exchange Rates • fixed exchange rate • floating exchange rate: since early 1970s • managed exchange rate system: • European Monetary System • official exchange rate • devaluation

  14. Table 9.3: Currency Concerns: Concepts for Conversing about International Exchange Rates and Balance-of-Payments Issues

  15. Figure 9.2: How to Tell a Real Bargain? Calculating the Cost of Goods in the Globe’s Confusing Currency Exchange System

  16. Bretton Woods Monetary System • fixed exchange rates maintained by governments • International Monetary Fund: balance of payments and exchange-rate stability • World Bank: loans for economic development • U.S. dollar: convertible at $35 per ounce of gold

  17. Floating Exchange Rates • 1971: Nixon ends dollars for gold • end of Bretton Woods exchange rates • floating exchange rates • vary by changing economic conditions • problems for central banks • compounded by financial crises • international cooperation to manage rates • Euro: regional currency for Europe

  18. Trade Trends and Troubles • regional trade blocs: NAFTA, EU, FTAA? • protectionism • most-favored-nation status • 2002: President Bush regains fast-track negotiating authority • domestic political and economic factors affect trade and trade policies

  19. Figure 9.3: Tariff or Not to Tariff: That is the Question

  20. Map 9.1: Ranking Countries by their Economic Freedom

  21. Map 9.2: The Volume of Trade Flows Between Major Trade Partners

  22. Figure 9.4: Global Economic Prospects: The Growth of Trade and Wealth, 1950-2008

  23. Discussion • In what ways is mercantilism linked to realism? • Can the United States fill the role of hegemon? • What states or groups of states could potentially assume the role of hegemon?

  24. Discussion, continued • In what ways do the low politics of international political economy and the high politics of international security affect each other? • In what ways does international political economy affect your life? • What are the positive and negative aspects of international trade?

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